Greek commercial banks may be optimistic about their 2003 profit outlook but most analysts agree that cost-cutting is the key to a sustained upward earnings trend in 2003 and beyond. Nevertheless, the same analysts expect limited progress on the cost front, citing the presence of strong labor unions and rigid labor market laws. They may be right. There seems to be, however, a more promising way for banks to combine effective cost control with revenue enhancement – the e-banking way. But this requires a long-term commitment in investing, training and educating personnel and clients, and as a result, few local banks have bet on it. Nine-month financial figures showed that National Bank of Greece, Alpha Bank and Commercial Bank suffered a year-on-year decline in revenues in the order of 16 percent, 6 percent and 16 percent respectively, while at the same time, total operating expenses, which include staff costs, administrative expenses and depreciation charges, rose by 5 percent, 9 percent and 7 percent respectively, exerting downward pressure on earnings. EFG Eurobank Ergasias’s total revenues rose 2 percent year-on-year in the first nine months of 2002 while total costs increased by 8 percent in the same period. Piraeus Bank’s revenues increased by 7 percent year-on-year and costs by 13 percent – these are not comparable to 2001 figures since they include the consolidation of ETVA bank. This pattern of depressed revenues on the back of a poorly performing stock market and rising costs helps explain the large drop in bank profits in the last three years or so. Uncertainty about future market conditions has prompted most equity analysts to call for measures to address the cost issue and pave the way for a more permanent recovery in earnings. Given the low penetration of Internet use in Greece, few analysts have entertained the idea of addressing the bank cost issue not just through the traditional avenues of labor costs but also via e-banking. It is no coincidence that the majority of Greek banks have shown little interest in pushing e-banking while some bankers claim that good local weather conditions, unlike Scandinavia, psychology and even temperament do not favor online banking. Indeed, according to a pan-European study conducted by Jupiter Research, the number of individuals who have access to the Internet in Greece is estimated to rise to 2.1 million in 2002 from 1.6 million in 2001 and is forecast to go up to 2.6 million in 2003 and reach 3.9 million in 2007, posting an annual average increase of 16 percent, the highest in the European Union, Switzerland and Norway, during the 2002-2007 period. But Greece has the lowest Internet penetration ratio in the group, since Ireland and Luxembourg, which are estimated to have had 1.4 and 0.2 million users respectively in 2002, have a much smaller population than Greece’s 10.6 million. Ireland’s population comes to 3.9 million and Luxembourg’s to 0.4 million, according to the same study. More interestingly, online banking users in Greece were estimated at 280,000 in 2002, up from 150,000 in 2001 and their number is forecast to swell to 500,000 in 2003 and reach 1.2 million in 2007, posting the highest annual average increase in this group of 17 European countries during the 2002-2007 time span. Again, Greece commands the lowest number of online banking users, surpassing just Luxembourg’s 60,000 in 2002 but trailing behind Ireland’s estimated 360,000 users in 2002. It comes as no surprise, therefore, that the number of Greek e-banking users as a percentage of the country’s online population is the lowest, with 13.1 percent in 2002 versus an estimated group average of 38.6 percent. Figures become even more discouraging for Greece when it comes to online brokerage users. Still, these numbers, however disappointing, show that there is great potential for e-banking in Greece as the penetration of the Internet is projected to rise in the coming years. Some large Greek banks seem to have understood the potential, both in terms of cost containment and revenue enhancement and making preparations. «E-banking is definitely linked to Internet access. These two go together. However, the brand name of the bank is an important catalyst for the success of e-banking,» says Dimitris Mavroyiannis, managing director at EFG e-Solutions, a member of the EFG Eurobank Ergasias Group, adding that culture is a «high but not prohibitive» barrier to entry. «The main advantage of e-banking is the shrinking of queues in bank branches and the resulting increase in time for customer service.» Mavroyiannis also points out that banks have a lot to gain by relying on Internet technologies. «When a bank adopts the use of Internet technologies internally, it achieves a significant cost reduction and customer service advantage, especially when that technology is coupled with effective organization structures and light processes,» he says. Sotiris Sirmakedis, director of the electronic banking division at Piraeus Bank, refers to studies conducted in the USA which have shown that e-banking investments become profitable when at least 10 percent of a bank’s clients carry out their transactions using the Internet, mobile telephony and related means, excluding ATMs. He adds the same studies also show that approximately 7 percent of US bank clients are active e-banking users, defined as those who make online transactions at least once every quarter. Perhaps slowly, but definitely steadily, users of e-banking services are on the rise in Greece as well. A recent study of a sample of Piraeus Bank clients revealed that about 7 percent of them used e-banking for transactions. Moreover, the number of online transactions doubled this year, reaching 25,000 to 30,000 per month. Sirmakedis says corporations are one of the main target groups for the moment since they can make more and more payments electronically, saving themselves lots of money. «Even though the Internet hype is down, e-banking customers are on the rise mainly due to VAT and IKA electronic payments,» agrees Mavroyiannis. Piraeus’s Sirmakedis points out that «e-government type of transactions will give more impetus to e-banking in the future.» At a time when cost control is considered necessary for Greek banks to achieve sustainable profit growth, e-banking seems to offer some hope both in terms of cost savings and revenue enhancement via increased customer satisfaction. The anticipated steep increase in Internet penetration and the increasing use of electronic payments by individuals and corporations bode well for e-banking in Greece. Unfortunately, few banks are committed to developing it and therefore be in a position to exploit its visible potential in coming years. It is never too late, however.